LIQUIDATIONS

INSOLVENCY IN TERMS OF THE NEW COMPANIES ACT

The new Companies Act which has replaced the old Companies Act makes provision for the liquidation of solvent companies and the dissolution of companies and what effect the removal of the company from the register will have on all stakeholders. The Act is highly complicated and Gordon Martin who heads up our insolvency department will be able to advise you on all aspects of the Companies Act and in particular under what circumstances a company has been liquidated and the procedure which is adopted to liquidate a company.

Liquidation of a solvent company

Section 80 of the Insolvency Act provides for the liquidation of solvent companies which is a radical departure from the law as it existed prior to the promulgation of this Act.

A solvent company may be wound up by the company itself or by the company’s creditors as determined by the resolution of the company or alternatively the company may be wound up by court order as contemplated in Section 81 and the procedures involved are set out in item 9 of Schedule 5 to the Act.

Once a company has adopted a resolution contemplated in the Companies Act to the effect that the company be wound up or may be insolvent a court on application by an interested person may order that the company be wound up as an insolvent company after considering the law contemplated in item 9 of Schedule 5.

Companies may be wound up by the company passing a resolution and before the resolution and notices are filed with the Registrar of Companies the company must arrange for security to the satisfaction of the Master of the High Court or alternatively request the Master to dispense with the provision of security. The directors duly authorised by the board of the company must submit a statement that the company has no debts and in addition thereto the company’s auditor must submit a certificate stating that to the best of his knowledge and belief and according to the financial records of the company, the company appears to have no debts.

On the other hand, a company may be wound up by resolution of the company which is known as a creditors’ voluntary winding up. A resolution is passed by the company and this is submitted to the Registrar of Companies under cover of certain other documents and the company may now be wound up in this manner. In this case, no security or directors and/or auditors certificates are necessary.

The court may wind up the company if the company has resolved by special resolution that it be wound up by the court or alternatively there is an application to court to have the voluntary winding up continued by the court.

If one or more directors or one or more shareholders have applied to court for an order to wind up the company on the grounds that the directors are deadlocked in the management and that if the company is allowed to continue irreparable injury may be suffered by the company as a result of the deadlock or alternatively the company’s business cannot be conducted to the advantage of the shareholders then the courts may grant an order winding up the company if it is satisfied as to the merits of the matter. There are a number of other instances set out in Section 81 of the Act which concern the winding up of a company by court and we will be in a position to explain all these matters to you and to implement the winding up of your company by way of a voluntary winding up of the company or by creditors or alternatively by way of court order. Here again it is absolutely crucial that you are properly advised by attorneys who are qualified and specialise in these matters. We have the necessary expertise and manpower at our disposal to afford you proper legal advice and to implement the provisions of the Companies Act, 71 of 2008 efficiently and at minimal cost.

Liquidation of a close corporation

The new Companies Act, 71 of 2008 has not replaced the Close Corporations Act and to all intents and purposes the Close Corporations Act remains in full force and the provisions thereof relating to the liquidation of close corporations and the provisions relating to management disputes and deregistration remain intact.

There are a number of amendments to this Act and we can explain to you how they affect the law but it is important to note at this time that no close corporations can be formed after the promulgation of the new Companies Act 2008 and there are certain provisons to the conversion of the close corporations to companies.

Liquidation by court order

An application could be made to court to wind up the affairs of the company in the hands of the Master of the High Court provided that the close corporation has passed a resolution that it be wound up by the court or that the company is insolvent. With the liquidation of close corporations it is not necessary to prove that there will be an advantage to creditors. The application may be brought by a creditor, a member or by way of an ex parte application.

Voluntary liquidation of close corporations

A close corporation may be wound up by voluntary surrender either by the members or the creditors by filing a special resolution with the Registrar of Close Corporations together with other statutory documents required by the law. If the application is brought by the members, the company will have to find security to the satisfaction of the Master of the High Court and both the members and the auditor will have to file certificates to state unequivocally that to their knowledge the close corporation has no liabilities. This may sound confusing to anyone who is not au fait with the intricacies of the Close Corporations Act but we will gladly explain the meaning and consequences of all the provisions of the Act and the common law in the simplest of terms so that our clients are satisfied as to what the consequences of their actions are.